Truck Law

A Transportation Law Blog from TransportationAttorneys.NET

Month: December, 2015

INCORPORATE YOUR BUSINESS FOR 2016

by G. Spencer Mynko, Esq.

INCORPORATE YOUR BUSINESS FOR 2016
01/01/2016 IS THE IDEAL START DATE FOR A CORPORATION

Trucking is a risky business. Disaster looms around every corner and the consequences of negative events can destroy companies and the livelihood of their owners. This rings true for large trucking companies and individual owner operators: anyone involved in trucking and transportation needs to take steps to protect themselves from overwhelming liability. The most common way trucking companies, including Owner Operators and Independent Contractors, accomplish this is by forming a Corporation (Inc.) or Limited Liability Company (LLC). The reason for this is so the owners won’t be held personally liable for business debts the corporation is unable to pay.
NOW IS THE PERFECT TIME TO INCORPORATE SO YOU CAN BE READY FOR 2016

 

Many of our clients form a corporation or an LLC to own their business assets and operate their business in order to protect personal assets and property from claims against the business. If the LLC or Corporation is formed and managed correctly, clients can limit their liability if there is a claim or lawsuit against their business. If there is a claim against the LLC or Corporation only the assets owned by the LLC or Corporation, and not the business owner’s personal assets, are subject to the claim. In other words, trucking companies/owner-operators can limit their liability if there is a claim or lawsuit against their business. If you’re operating as a DBA or a sole proprietorship, you might as well be getting behind the wheel blindfolded. You’re taking an enormous risk whether you realize it or not. The harsh reality is a single accident could cost you everything you have worked for. I’ve said it a million times, and I’ll say it a million more times: If you’re in trucking, you have to incorporate.
TAKE ADVANTAGE OF THE BENEFITS ASSOCIATED WITH INCORPORATING BY 1/1/16
For Trucking Companies, Owner-Operators, and Independent Contractors, January 1 is the most logical start date since it eases the paperwork burden and will simplify accounting issues.

From a legal standpoint, any time is the best time. The sooner you incorporate, the sooner you make the move from the world of unlimited liability to the world of limited liability.

From a tax savings standpoint, any time is the best time. The sooner you incorporate, the sooner you will start putting more money in your own pocket and less in Uncle Sam’s.

But from a tax reporting standpoint, there is one time of year that stands out as best: January 1st. Only then do you have a “clean break” from the old sole proprietorship to the new corporation. You can start fresh in the new year as a Corporation or LLC. Additionally, you don’t have to worry about reporting taxes as two different entities during the year. Because of this, January is the busiest time of the year for processing incorporation applications at many Secretary of State offices. I advise you to file ASAP to avoid any delay associated with the barrage of January filings. Also, a “delayed filing” that lets you complete your paperwork now and then delay your actual incorporation date until next year. This lets you effectively choose the date of incorporation and your application will be fast tracked to the front of the line in January.

By making the filing effective in January, you streamline the taxation procedure because your business starts in the first month of the calendar year. If you incorporate in the middle of the calendar year and do business as a sole proprietorship before your incorporation effective date, you’ll likely have to make two separate tax filings for the fiscal year: one for your sole proprietorship and the other for the freshly incorporated entity, for example. The delayed January filing elegantly sidesteps this issue. From January onwards, you report just for the corporation.
HERE’S WHAT YOU NEED TO DO TO PROTECT YOUR CORPORATION ONCE ITS UP AND RUNNING
Once you’re incorporated, you will enjoy limited liability and corporate protection. However, courts will sometimes hold a corporation’s owners and shareholders personally liable for business debts. This is called “piercing the corporate veil”.  Corporations enjoy a “veil” of limited liability, but this can be lifted if a court decides the owner/shareholders are not entitled to corporate protection. Therefore, you need to be asking yourself if you could be personally liable for your business debts and are you taking all the necessary steps to prevent that from happening?

 

Corporations are legal entities and are separate from the people who own them.The major advantage of forming a corporation is the owners have limited personal liability for company debts. Usually, Corporation owners/shareholders cannot be held personally responsible for business debts. However, courts can ignore the limited liability status of the corporation and hold its officers, directors and shareholders personally liable for its debts. As stated above, this is called “piercing the corporate veil”. Small corporations are at greatest risk for having their veils pierced. “Closely held corporations” – corporations owned by one or just a few people – are most likely to get there veils pierced.

 

When a corporate veil is pierced, the owners/shareholders can be held personally liable for corporate debts. When this happens, creditors can go after the owner’s home, bank account, investments, and any other assets to satisfy the corporate debt. Therefore, it is critical to understand when a court will pierce the corporate veil.

 

So, when do courts pierce the corporate veil?

 

One: there is no true separation between the company and its owners. If the owners fail to maintain formal legal separation between their business and their personal finances, the corporation is just a sham and the owners are personally operating the business as if the corporation didn’t exist. In this situation, the corporation is the “alter ego” of it’s owner(s).  Examples of this include an owner paying personal bills from the business checking account, ignoring legal formalities that a corporation must follow (such as recording important corporate decisions in the minutes of a meeting), not holding shareholder meetings (even if there is only one shareholder), and generally not acting like a corporation. In these situations, a court could decide that the owners are not entitled to limited liability protection.

 

Two: fraudulent or wrongful conduct by the company. If the company’s owners acted recklessly or dishonestly, a court could decide that limited liability protection should not apply.

 

Three: The companies creditors suffered an unjust cost. In the event a corporation is the “alter ego” of its owner, and the company’s actions were wrongful or fraudulent, a court will try to prevent injustice or unfairness by piercing the corporate veil.
 

Factors courts consider when piercing the corporate veil include:

 

One: whether the corporation engaged in fraudulent behavior.

 

Two: whether the corporation failed to follow corporate formalities.

 

Three: whether the corporation was adequately capitalized and had enough funds to operate.

 

Four: whether one person or small group of people were in complete control of the corporation.

 

Again, small corporations are particularly vulnerable to piercing. Owner operators need to be particularly concerned about this. Even though you are the sole owner and shareholder of the corporation, you still need to follow corporate formalities. Specifically, you need to hold annual meetings of directors and shareholders, keep accurate and detailed records of important decisions, adopt company bylaws, and abide by those bylaws.

 

Do not commingle assets. The corporation should maintain its own bank account and the owner should never use the company account to pay for personal expenses.

 

You can protect yourself against a court piercing your corporate veil by:

 

Following the rules for forming and maintaining a corporation.

 

Maintaining a separate bank account for the corporation.

 

Do not use corporate assets for personal use.

 

Making a reasonable initial investment in the corporation.

 

Do not personally guarantee corporate debts.

  

Do not use the corporation for illegal, fraudulent or reckless acts.

 

Do not commingle personal assets with corporate assets.
Let the world know they are dealing with a corporation. Put “Inc.” on business cards, letterhead, invoices, email, etc. When signing company documents, make it clear you’re doing so in your representative capacity; e.g.: president, vice president, secretary, etc. For more information contact us for all of your corporate questions or concerns.
CONTACT TRANSPORTATION ATTORNEYS TO SET UP YOUR CORPORATION OR LLC
Transportation Attorneys regularly helps trucking companies, from large carriers to owner operators, with all corporate matters. We are happy to set your corporation up, and advise you on issues regarding corporate governance and best practices for your corporation. No matter how big or how small your business is, if you are in trucking, you should be incorporated!

End Of Year Legal Issues in Transportation

by G. Spencer Mynko, Esq.

HAPPY THANKSGIVING FROM TRANSPORTATION ATTORNEYS!

While we hope you will enjoy the holidays, there are End-Of-Year legal issues all Trucking Companies and Owner-Operators should be aware of: IRS Section 179 and Bonus Depreciation; Workers Compensation Rate Cuts for 2016, and; TRU (Reefer) Compliance Extension

IRS Section 179: 
What is the Section 179 Deduction? 
Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. That means that if you buy (or lease) a piece of qualifying equipment, you can deduct the FULL PURCHASE PRICE from your gross income. It’s an incentive created by the U.S. government to encourage businesses to buy equipment and invest in themselves. Several years ago, Section 179 was often referred to as the “SUV Tax Loophole” or the “Hummer Deduction” because many businesses have used this tax code to write-off the purchase of qualifying vehicles at the time (like SUV’s and Hummers). But, that particular benefit of Section 179 has been severely reduced in recent years: Today, Section 179 is one of the few incentives included in any of the recent Stimulus Bills that actually helps small businesses. Although large businesses also benefit from Section 179 or Bonus Depreciation, the original target of this legislation was much needed tax relief for small businesses – and millions of small businesses are actually taking action and getting real benefits.

How Section 179 works at a glance (updated for Tax Year 2015)

  • 2015 Deduction Limit = $25,000. This deduction is good on new and used equipment, as well as  off-the-shelf software. This limit is only good for 2015, and the equipment must be financed/purchased and put into service by the end of the day, 12/31/2015.
  • 2015 Spending Cap on equipment purchases = $200,000  This is the maximum amount that can be spent on equipment before the Section 179 Deduction available to your company beginsto be reduced on a dollar for dollar basis. This spending cap makes Section 179 a true “small business tax incentive”.
  •  Bonus Depreciation: not available in 2015  In prior years, Bonus Depreciation would be taken after the Section 179 Spending Cap is  reached. Note: Bonus Depreciation was available for new equipment only; in 2015, Bonus Depreciation is not available at all.
  • Contact your Tax Expert for more detailed information! You may want to purchase another truck before years-end.
Work Comp Insurance Rate Cut for 2016:
Insurance Commissioner Dave Jones just approved a 2% rate cut for Jan. 1, 2016 policies to follow the 10.2% reduction that was approved for mid-year 2015. The adopted rate cut is more than double what the industry-backed Workers’ Compensation Insurance Rating Bureau proposed, but is less than the 6% cut that employer and labor representatives sought.

“The WCIRB recommended a pure premium rate of $2.45 per $100 of employer payroll. The public members actuary recommended as its middle range a rate of $2.32 per $100 of payroll. The Department of Insurance, after a full public hearing and review of the testimony and evidence submitted recommends adopting a pure premium rate of $2.42 per $100 of employer payroll.” Jones notes in his decision. The Commissioner adopted his department’s recommendation.

Employers up for renewal should feel the effect of both rate reductions, although individual rates will be impacted by loss history, covered classifications and the carrier’s underwriting policies.

Pure premium rates for the individual classifications will be adjusted based on the classification relativities in the Bureau’s filing. The Bureau is a non-governmental private organization financially supported by insurance carriers. The new rates take effect Jan. 1, 2016.

TRU Reefer Compliance Extension for MY 2008:

California’s deadline to order reefer replacements and remain eligible for an enforcement and delay expired with August. However, all hope is not lost.

Though 2008 model year reefer owners may have missed the Aug. 31 deadline, ordering a retrofit device soon may still allow installation to happen before the New Year’s Eve deadline, CARB says.

The California Air Resources Board’s Transportation Refrigeration Unit Regulation, also known as the Reefer Rule, requires an ongoing upgrade of used reefers on a seven-year basis. By 2016, 2008 or older model year reefers operating in California must meet the rule’s in-use performance standards.

“TRU (reefer) owners – If you missed the Aug. 31 deadline for ordering new TRU units, the California Air Resources Board recommends that you take immediate action to order Level 3 verified diesel particulate filters for retrofitting your model year 2008 engines by the end of 2015,” the announcement reads. “Orders for replacement units that are placed after Aug. 31 will NOT be eligible for compliance extensions if delivery or installation will be completed after Dec. 31, 2015.”

However, CARB points out, even retrofit diesel particulate filters are ordered as late as the end of October, installation is likely to be complete by late December. While replacement reefer units ordered in October aren’t eligible for an enforcement delay due to manufacturer wait times, retrofits ordered by Oct. 31 may be eligible for enforcement delays due to delivery or installation issues.

Anyone applying for an enforcement delay must be registered in CARB’s Equipment Registration (ARBER) system and submit applications for the extension with required documentation by Dec. 31.

California law requires freight brokers, forwarders, shippers and receivers to hire and dispatch only TRU-equipped trucks, trailers, shipping containers and railcars that are CARB compliant.